The much maligned Robert Kiyosaki

Robert Kiyosaki is famous (or infamous, depending on your viewpoint) for his break-out book: Rich Dad, Poor Dad.

Whichever way you happen to lean on this subject (and, please feel free to share!), I think that he deserves to be congratulated for thrusting personal finance back into the spotlight, and he equally deserves to be admired for his ability to parlay that first success into a personal finance publishing empire that includes 10 to 20 books, a few games, and so on.

In fact, RDPD is one of the very first books on personal finance that I ever read, and is certainly the book that inspired me to look into the field very deeply.

It’s unfortunate, then, that Robert Kiyosaki has managed to build up both a cult following and a cult anti-following (?!), neither of which I ascribe to.

Jake says, somewhat, tongue in cheek:

Ahh, so you will now renounce your belief that Kiyosaki is not a quack? :)

Abandon the dark side…

Actually, Jake, I’ve never commented on RK’s quackiness of lack thereof 😛

All I’ve said is:

1.  His book – at the time – inspired me to look into the field of personal finance a LOT further.

2. I like RK’s definition of liability v asset (albeit, not technically correct, he says an ‘asset puts money in your pocket, and a liability takes money out’. Neat!).

3. I think that RK became rich because of his book, and was worth ‘only’ circa $1.5 mill. (give or take $500k) before.

I base this last assessment purely on a statement he made in RDPD (or one of his later books, perhaps Cashflow Quadrant? … I’m working from memory, here, as I have filed his book away somewhere) that he ‘retired’ to write that first book (or was it to create his board game?) on passive income of $100k p.a., driven primarily by real-estate.

That’s pretty much it!

But, and this is important, realizing that a lot of these personal finance gurus – whether well-meaning and genuine in their belief or out-and-out scammers, scoundrels, and liars – actually made their real wealth, if at all, AFTER (or because) they wrote their books …

… I firmly resolved that I would study the field of personal finance, apply what I learned, and (hopefully!) become rich in the process, THEN write about it from the standpoint of a REAL self-made, multi-millionaire entrepreneur and investor.

This blog is the result 🙂

Is your home an asset?

I spend a LOT of time on this blog talking about your home, and rightly so; your home is often regarded as your single largest asset.

Or, is it?

TraineeInvestor reopens the debate with what I think is a really interesting – seemingly ‘throwaway’ – line in his comment to this post:

The overwhelming consensus of opinion on internet forums and blogs is that your home is not an investment. (There are even people who think it is a liability rather than an asset!!!).

The “overwhelming consesus” hasn’t made $7 million in 7 years, and probably never will 😛

But there is grounding to the home-not-an-asset way of thinking; for example, in this post I quoted Robert Kiyosaki who first told me that a home is NOT an asset [AJC: Unlike many others, I am not a Robert Kiyosaki detractor … Rich Dad Poor Dad was the first book that I ever read on personal finance and, at the time, it really opened my eyes to the value of financial education].

Here’s what RK said: 

  My Poor Dad Says   My Rich Dad Says
  “My house is an asset.”   “My house is a liability.”
  Rich dad says, “If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It’s important to know the difference between the two.

Yet, paradoxically, TraineeInvestor also pointed to the exact opposite: study after study has shown that the wealthy own their own homes and the ‘poor’ do not!

So, what do I think?

Well – and, this may also SEEM paradoxical – I actually agree that a home is not  an asset in the sense that it doesn’t earn an income.

Of course, you could rent to yourself.

Tell me then, though, when do you – could you – ever realize the value in that ‘asset’?

Only if you sell (you never will); or, pass it on (it’s not an asset for YOU).

Yet, there is one way to realize at least part of the value of your asset (while you still need a place to live), and that is to release some equity by refinancing.

So, technically, I agree with the ‘non-asset’ thinking, which is why I ask you to at least minimize the equity in your own home to a mere (by Dave Ramsey standards) 20% or less of your current Net Worth (and, review annually).

I also advocate buying your first home – more for some ‘human nature’ reasons rather than strict financial reasons – but, nowhere in this blog have I ever said: “… then, upgrade it”! 😉

Why bother keeping up an esoteric “is your home an asset or a liability?” debate at all, when the only real question that you need ask yourself is:

Can I reach my Number if I buy my own home, then keep [insert ‘% of current home value’ of choice: 0%; 10%; 20%; 50%; 100%; other] tied up as home equity?

My standard advice is, YES … if:

a) I buy my first home (with whatever starting equity that my bank and I can agree on), then

b) [as soon as reasonably possible, start to] maintain no more than 20% of my net worth in that – or, any future – home as equity

c) and, reassess b) annually (against both my home’s and my own net worth’s current value)

Ultimately, the equity that you choose to keep in your home either helps you to reach your Number, or it doesn’t.

For most people, “reaching their Number” means amasssing ‘real’ assets in the range of millions of dollars. Logically, tying up valuable equity in something that can’t possible reach ‘millions of dollars’ in value is wrong, so why do it?

What does this all mean for you?

My ‘rules’ of home ownership are designed to give you the best chance to reach your Number by your Date.

Depending on how YOU choose to look at it, your home is either your single largest asset or single largest liability …

… the real point of this blog is to make sure that it doesn’t stay that way 🙂

To MLM or not to MLM? That is the question …

Robert Kiyosaki (of Rich Dad, Poor Dad fame) is fabled to have ridden to success on the coat-tails of the ‘network marketing’ (a.k.a. MLM) community, who are said to have distributed his books to ‘downlines’ by the millions … or, so the story goes.

But, it is true that RK is a fan of MLM, as this video proves; the (justifiable, in my opinion) reasons that he gives is for the business education that it gives you …

… and, I agree. My only issue with MLM is that you are putting your future in the hands of the MLM company: you build a huge profitable business generating millions of dollars a year in passive income (as my wife’s old school chum does!), but what happens if they change the rules or, worse, close their doors or shut down the MLM distribution arm of their business?

But, I do think that if you simply substitute the words: “part time business” – better yet, “part time online business” into Robert Kiyosaki’s video, then you will have all of the benefits of MLM in a much more ‘new millennium’ platform.

It could be:

1. An information products site,

2. A web 2.0 (i.e. the “next FaceBook”) business,

3. An eBay business,

4. ??????

Of course, there are still risks: for example, you could build a massive e-Bay business and have your account suspended on a ‘technicality’ (as happened to my son a few months ago); risks abound but if you start small, cheap and see what develops, you will at least gain the #1 objective that TK mentions: a business education 🙂

Rich Rat, Poor Rat

This video is essentially an ad for Robert Kiyosaki’s (Rich Dad, Poor Dad author) board game … a game that I own but have NEVER played. But, the video is also a snapshot of how you can use assets to buy consumer goods. Watch the (visually OK, but aurally uninspiring) video, then read on as I have some comments …

[AJC: Finished watching? Good …. now read on ….]

1. The assumption is that you are smart enough NOT to finance a depreciating ‘asset’ (actually, liability) and save up enough money to pay CASH for your boat: GOOD

2. Can you see how Robert Kiyosaki then suggests that you buy a cashflow positive property, using the cash that you saved for the boat as a deposit on the property instead? Robert implies that the property produces enough cash to then pay for the loan repayments on the boat: BETTER

But, Robert is suggesting that we BREAK a key making Money 101 Rule: that we should borrow to by a consumer item (this is BAD debt); Robert also suggests that ‘delayed gratifiction’ is good. So, let’s make use of this to see if we can come up with a better outcome.

Using a very simple loan calculator, I find that the $16,000 boat will actually cost us $21,600 over 4 years (assuming 10.5% interest, and $343 / month payments) …

… but, if we instead SAVE the full $750 / month that the property spins off as money in our pocket (after mortgage, etc.), we will have SAVED up enough to pay CASH for the boat in just under 2 years (21 months)! What’s more, over the four years that we have NOT been paying the boat loan, our money has been earning us approx. an extra $100 – $400 in bank interest.

OK, so the $100 – $400 extra interest we earn (if the money just sits in CD’s) is not exciting, but also SAVING $5,600 … a total of nearly $6k … surely is? So waiting less than 2 years, then paying cash for the boat, thus saving ourselves nearly $6,000: BEST

There is an exception: where the expense is a business expense it may be OK to finance … Robert gives the example in one of his books about how he was going to buy a Ferrari, but his wife (who’s obviously smarter – as well as better looking – than him) told him to buy a self-storage business instead, and use that to fund the payments on the Ferrari.

Smart … but, I’m sure the IRS would have some words about the deductibility of a Ferrari as ‘company car’ for a self-storage business 😉

Gold and Silver is God's Money!

Just gotta love Robert Kiyosaki … he has a way with sensationalizing the really, really boring subject of money:

Hope you enjoyed this latest installment of my Video on Sundays Series – for the entertainment value as much as (more than?) the ‘educational content’ …